That imputation credits of up to 15 per cent of repatriated
dividends be provided for foreign dividend withholding tax (DWT) paid, including for DWT
paid on repatriated exempt dividends.

This proposal is discussed in A Platform for Consultation (pages 672-673).

The current imputation arrangements provide a credit to resident individual
shareholders for company tax paid on Australian source income (resulting in franked
dividends) but levy a layer of domestic tax on distributed foreign source income. Hence
foreign taxes are ignored when personal income tax is levied on dividends paid by resident
companies out of foreign source income.

While there is only one layer of Australian tax levied on distributed dividends,
foreign tax has the potential to discourage offshore investment relative to domestic
investment. This may be contrary to Australia's best interests given the increased
opportunities for Australian entities to invest profitably overseas.

A growing number of large public companies in Australia derive an increasing proportion
of their income from overseas. In many cases they have outgrown the Australian market
place and have expanded offshore.

Providing an imputation credit for foreign DWT (up to a maximum of
15 per cent of the dividend) will:

 partially remove the current imputation system's bias that
discourages foreign investment over domestic investment, including where the underlying
risk-adjusted rates of return are identical;

 provide a benefit to resident shareholders of companies deriving
significant foreign source income -- irrespective of the number of foreign shareholders --
by converting some unfranked dividends into franked dividends;

 reduce the extent to which foreign dividend withholding taxes can
discourage the repatriation of profits from offshore;

 achieve comparability with investments made directly by Australians
in foreign companies (currently Australian individuals can claim a foreign tax credit for
DWT if they invest in a foreign company either directly or via a resident trust, whereas
Australian-based multinational companies are unable to pass on a credit for DWT to their
Australian shareholders); and

 maintain this flow-through effect for foreign DWT under the
proposed entity tax regime for investment offshore by Australian individuals via resident
trusts -- be they trusts taxed like companies or collective investment vehicles
(CIVs).

The benefit to shareholders of providing an imputation credit for DWT is shown in Table
20.1.

(a) Personal tax of $30 on $100 foreign dividend less a foreign tax credit of $15.

(b) Personal tax of $25.50 on $85 dividend paid by the Australian entity, less
imputation credit of $15 for the tax paid by the Australian entity.

(c) Personal tax of $25.50 on $85 dividend paid by the Australian entity.

Some submissions to the Review supported the provision of imputation credits for
foreign tax in excess of DWT -- that is, providing a credit for some or all foreign
underlying tax. Providing imputation credits to this extent would have the following
undesirable consequences.

 There would be a greater revenue cost. While some imputation
credits could be made non-refundable to offset the extra cost, limiting credits to foreign
DWT actually paid (up to 15 per cent) allows those credits to be refundable in
the same way as other imputation credits. This reduces complexity, administration and
compliance costs.

 There would be a revenue risk from dividends being repatriated to
Australia to gain the imputation credit and then sent back offshore. Consequently, rules
would be required to prevent such arrangements.

 Foreign investments via an entity would be favoured over direct
investment in foreign entities (which would attract a foreign tax credit only for DWT
paid, unless this credit were also increased).

 There would be a greater need to consider imputation credits for
other foreign taxes paid by foreign branches of resident entities to avoid providing
markedly different treatment to branches and subsidiaries. It would be difficult to verify
the amount of tax actually paid by foreign branches, since branch profits are generally
not subject to tax on repatriation in the foreign country and are generally exempt in
Australia under the current branch profit exemption arrangements.

That foreign source dividends not be allowed to be streamed to foreign
shareholders (and therefore franked dividends not be able to be streamed to Australian
shareholders).

The extra layer of tax on foreign source dividends paid to Australian shareholders
could be addressed by also allowing streaming of unfranked dividends out of foreign source
income to foreign shareholders. Currently all dividends must be distributed
proportionately to all shareholders.

Allowing streaming of foreign source dividends to foreign shareholders, as suggested by
some submissions, would provide an additional benefit to Australian entities which have
Australian and foreign shareholders and which also have both Australian and foreign source
income -- and as a result pay franked dividends (from taxed Australian source income)
and unfranked dividends (from taxed foreign source income which is exempt from Australian
entity tax). Streaming would effectively allow franked Australian source dividends to be
paid to Australian shareholders (and unfranked dividends to foreign shareholders) while
maintaining the same total dividend payment to all shareholders. Imputation credits (from
taxing Australian source income) that would otherwise be `wasted' on the foreign
shareholder proportion could be channelled to Australian shareholders. In contrast,
providing an imputation credit for foreign DWT paid only partially converts unfranked
dividends out of foreign source income into franked dividends.

Streaming becomes more beneficial as the proportion of franked dividends increases
relative to the proportion of Australian shareholders (since more franked dividends could
be directed to Australian shareholders). If there is only a low proportion of franked
dividends relative to the proportion of Australian shareholders, providing both imputation
credits for foreign DWT (to boost the level of franking) and allowing streaming (to direct
them to Australian shareholders) is beneficial.

As noted above, either providing an imputation credit for foreign DWT or allowing
streaming of unfranked dividends to foreign shareholders would address the potential
disincentive for offshore investment relative to domestic investment. However, streaming
is estimated to have a greater revenue cost than providing imputation credits for DWT of
up to 15 per cent. Furthermore, providing an imputation credit will benefit a
wider range of entities -- not only those with some franked income and some foreign
shareholders. All entities will have an equal incentive to expand offshore into profitable
ventures. If only streaming were allowed, entities with no foreign shareholders or franked
income would receive no incentive.

Allowing streaming of foreign dividends to foreign shareholders would not improve the
returns to foreign shareholders. This is because Australian tax is not currently levied on
most foreign source dividends paid to foreign shareholders (through the effect of the
foreign dividend account arrangements). This is illustrated in Table 20.2.

Table 20.2 Effect of streaming on resident and non-resident
shareholders

Current
approach (requires dividends to be equally franked)
$

Streaming

$

Exempt foreign source dividend received in
Australia from comparable tax country (after foreign company tax at 30% and DWT at 15%)

100

100

Australian source income distributed
franked (after company tax at 30%)

100

100

After-tax return to resident shareholders
(50% of total shareholders) after imputation credits and personal income tax at 30%

Australian
source income
foreign source income
total

50
50×0.7= 35
85

100
0
100

After-tax return to foreign shareholders

Australian
source income
foreign source income
total

50
50
100

0
100
100

Allowing streaming would provide an incentive to match the proportion of Australian
shareholders to the proportion of franked dividends. That would maximise the franking
benefits received by Australian shareholders. If the proportion of unfranked dividends
increased (reflecting further expansion offshore), there would be pressure to reduce the
proportion of Australian shareholders relative to foreign shareholders (by, for example,
issuing more share capital offshore) to ensure the dividends received by resident
shareholders remain fully franked.

Streaming would provide a benefit to resident shareholders and increase the
attractiveness to them of holding shares because of increased franking. However, if the
proportion of foreign source income and the level of foreign shareholding in an Australian
entity increased markedly over time such that resident shareholders are in the minority,
the Australian entity could face pressure from the foreign shareholder majority to
re-locate offshore (to improve the foreign shareholders' after-tax return on income
sourced in their home country).

That `stapled stock' arrangements continue to be allowed with the
current franking account adjustment.

Offshore `stapled stock' arrangements broadly involve Australian entities establishing
a foreign company that pays dividends to foreign shareholders while Australian
shareholders receive a comparable franked dividend from the Australian entity. Under
current treatment, the franking account of an Australian entity is debited for the
imputation credits diverted to its Australian shareholders because dividends to foreign
shareholders of the Australian entity's foreign company are directly paid from foreign
source income of that company. If these arrangements were allowed without an adjustment to
the franking account, they would provide the same benefits to resident shareholders as
streaming by the Australian entity -- that is, a higher proportion of franked dividends.

Stapled stock arrangements can provide an additional benefit for foreign shareholders
without further reducing the Australian revenue if the foreign shareholders are located in
the same country as the source of the `foreign source' income. In this case foreign DWT
can be avoided and any imputation credits provided by the foreign country for foreign tax
may be preserved for the foreign shareholders.

Currently, foreign dividends paid to foreign shareholders under stapled stock
arrangements incur a debit to the franking account for the imputation credits diverted to
Australian shareholders. This debit removes the potential benefit to Australian
shareholders of the stapling arrangement, while preserving the benefits for foreign
shareholders outlined above.

Since streaming is not recommended, it would be inconsistent to allow stapling
arrangements to achieve similar tax outcomes for resident shareholders. For this reason,
the debit to the franking account will remain. As at present, companies could still use
stapled stock arrangements to benefit foreign shareholders.

(i) not be allowed the dividend exemption for distributions from foreign
trusts; but

(ii) be allowed a foreign tax credit for foreign `underlying tax'.

These issues are discussed in A Platform for Consultation (page 670).

The dividend exemption is intended to be available only for dividends paid from profits
that are likely to have been taxed in a listed comparable tax country. Trusts, however,
are taxed as flow-through entities in many listed comparable tax countries and amounts
derived through trusts located in these countries may not be subject to a comparable level
of tax. Accordingly, the exemption will not be available for distributions from foreign
trusts because they could be used, for instance, to stream low-taxed income from a third
country to Australian beneficiaries without those amounts being subject to comparable tax.
Rules in the controlled foreign company measures that safeguard the dividend exemption
would not apply to foreign trusts. Moreover, the foreign investment fund (FIF) measures
may not provide protection because FIF income is generally reduced for exempt dividends
paid by a FIF.

Since the dividend exemption would not be available, the foreign tax credit system
would apply. By allowing resident entities (companies and trusts) a foreign `underlying
tax' credit for distributions from a direct interest in a foreign trust, companies and
trusts subject to the entity tax regime will be treated consistently. For this purpose,
fixed beneficial interests of at least 10 per cent in the profits of a foreign
trust could be treated as direct interests.

That the Australian Government propose to the New Zealand Government
that discussions be held with a view to introducing a mechanism to allow franking credits
to flow through trans-Tasman companies on a pro-rata basis to Australian and New Zealand
investors.

Australian investors in New Zealand companies that are deriving Australian source
income do not receive credit for Australian tax paid on that income. Likewise, New Zealand
investors in Australian companies that are deriving New Zealand source income do not
receive credit for New Zealand tax paid on that income.

This so-called `triangular case' has been raised by business in the context of the
Closer Economic Relations agreement with New Zealand (CER) and has been a long-standing
subject of discussion between the Australian and New Zealand governments. Joint work on
the issue has been undertaken between officials but further consideration deferred until
after the outcome of this Review.

The issue was discussed in A Platform for Consultation (pages 660-661).Although
it is a systemic problem, the only submissions arguing for the pursuit of a solution were
made on behalf of a number of companies with substantial trans-Tasman investments and
shareholders. Shareholders of these companies are significantly disadvantaged by the loss
of franking credits. While reform could be implemented unilaterally, there will be
advantages in negotiating a reciprocal agreement under the framework of CER.

A major risk with implementing a unilateral solution - one that could apply beyond
New Zealand to any non-resident company with Australian shareholders that derive
income through an Australian resident company - is that it could promote the shifting of
headquarters overseas, for example to tax havens, to avoid features of Australia's tax
regime. A relocated headquarters company, for example, could earn foreign source income
through a tax haven while receiving fully taxed profits from its Australian operations and
paying them to Australian shareholders by way of franked dividends, just as it could if
its headquarters were in Australia.

That some limited changes be made to the foreign source income rules for
foreign trusts pending a comprehensive review of the rules (Recommendation 23.1).

The foreign source income rules for foreign trusts are very complex. That complexity
arises partly because the four regimes covering foreign trusts were not introduced
concurrently. The main regimes that apply to foreign trusts are the transferor trust
measures, the FIF measures and the deemed present entitlement rules in the general trust
provisions. There are also rules that apply to foreign trusts in the controlled foreign
company measures.

Broadly, the transferor trust measures tax residents, who have transferred value to a
foreign trust, on the undistributed profits of the trust (called `attributable income').
An exemption applies for transfers to family trusts and for amounts that have been
comparably taxed. Another component of the transferor trust measures is an interest charge
on foreign trust distributions to resident beneficiaries. The charge applies to
distributions of profits not previously taxed in Australia or in a closely comparable tax
country.

The FIF measures and deemed present entitlement rules apply to interests held by
resident beneficiaries in foreign trusts. The FIF measures operate to tax resident
beneficiaries on their share of the undistributed profits of a foreign trust. The deemed
present entitlement rules apply to controlled foreign trusts and other foreign trusts that
are exempt from the FIF measures. The rules treat resident beneficiaries as presently
entitled to a share of profits accumulated in a foreign trust based on their rights to
receive distributions from the trust.

A comprehensive review of the foreign source income rules has been recommended
(Recommendation 23.1). There is, however, an opportunity before that review to make
the foreign source income rules for foreign trusts less complex and to reduce compliance
costs (Recommendations 20.8 and 20.9). Submissions on A Platform for
Consultation have supported these changes. Changes to the transferor trust measures
are also recommended to minimise tax avoidance through the use of foreign trusts
(Recommendations 20.10 to 20.12).

(a) That the deemed present entitlement rules in relation to foreign
trusts be removed.

Expanded application of FIF measures

(b) That certain interests currently taxed under these rules --
fixed interests in closely held trusts and in trusts subject to the transferor trust
measures -- be subject to the FIF measures.

This proposal is discussed in A Platform for Consultation (page 676).

Currently, fixed beneficial interests in foreign trusts that are exempt from the FIF
measures may be subject to the deemed present entitlement rules in the general trust
provisions. The deemed present entitlement rules were intended to also apply to contingent
and other non-fixed interests in foreign trusts but have only been effective when dealing
with fixed interests. These fixed interests can be handled more equitably under the FIF
measures which contain comprehensive rules for preventing double taxation. The deemed
present entitlement rules cannot be made to operate appropriately for non-fixed interests
and are therefore largely redundant.

Overlap will be avoided by removing the deemed present entitlement rules and taxing
fixed interests in foreign trusts subject to those rules under the FIF measures. The scope
of the FIF measures would be extended by removing exemptions for interests in closely held
trusts and trusts subject to the transferor trust measures. Taxpayers will not be
disadvantaged by extending the scope of the FIF measures in this way because only
taxpayers currently subject to the deemed present entitlement rules would be affected.

Consistent with current treatment, interests in closely held fixed trusts will be
subject to the calculation method for determining FIF income and an unmodified net income
calculation will apply. These changes will not increase the compliance burden for
beneficiaries of closely held fixed trusts because the beneficiaries are currently
required to make the more precise net income calculation under the deemed present
entitlement rules.

To avoid double taxation, the amount on which a transferor is taxed under the
transferor trust measures will be reduced to the extent the amount is taxed in the hands
of resident beneficiaries under the FIF measures. This is consistent with the reduction
that currently applies for amounts taxed under the deemed present entitlement rules.

(a) That the FIF measures be the only attribution regime for foreign
fixed trusts unless there are foreign beneficiaries.

Treatment in presence of foreign beneficiaries

(b) That where there are foreign beneficiaries:

(i) the FIF measures apply to resident beneficiaries; and

(ii) the transferor trust measures apply to resident transferors on
amounts not taxed under the FIF measures.

These proposals are discussed in A Platform for Consultation
(pages 678 and 688-689).

The FIF measures provide adequate protection from tax deferral for interests held by
resident beneficiaries in fixed trusts offshore. Transfers to fixed trusts can therefore
be excluded from the transferor trust measures where the trusts have only resident
beneficiaries. These trusts would be subject only to the FIF measures and their
distributions exempt from the interest charge that can currently apply to claw back the
benefits from tax deferral.

For fixed trusts offshore with foreign beneficiaries, the FIF measures will apply to
resident beneficiaries and resident transferors will be subject to the transferor trust
measures on amounts not taxed under the FIF measures. Only the transferor trust measures
provide effective protection from tax deferral where a resident has made a transfer to an
offshore trust with foreign beneficiaries. A trust, for instance, could be only one
component in a broader scheme that involves distributing trust profits to foreign
beneficiaries who then provide gifts or other benefits to the transferor or associates of
the transferor. The FIF measures provide little protection from arrangements of this kind
because the measures apply only to interests held by resident beneficiaries.

Beneficiaries generally
subject to the deemed present entitlement rules in the general trust provisions.

The transferor is subject to the transferor trust measures (the amount attributed is
reduced for amounts taxed under the general trust provisions).

As in Case 1, an interest charge applies.

Same as Case 2 but only
resident beneficiaries are subject to the deemed present entitlement rules.

Implications of current
treatment

The transferor trust measures
cannot be applied.

The sole operation of either
the FIF or transferor trust measures could provide effective protection from tax deferral.

As discussed in the rationale
for Recommendation 20.9, only the transferor trust measures are considered to provide
effective protection from tax deferral where there are non-resident beneficiaries.

Proposed treatment

Resident beneficiaries subject
to the FIF measures.

Resident beneficiaries subject
to the FIF measures.

The transferor trust measures will not apply if transferors can show that all
beneficiaries are residents.

Resident beneficiaries subject
to the FIF measures.

Transferor subject to the transferor trust measures (the amount attributed will be reduced
for amounts taxed under the FIF measures).

Information requirements in
addition to current requirements

None

None for the transferor or for
resident beneficiaries.

The transferor is currently required to ascertain the extent to which resident
beneficiaries are taxed under the general trust provisions.

Same as Case 2

Reducing the overlap in the foreign source income rules, by providing an exemption from
the FIF measures for fixed or hybrid trusts subject to the transferor trust measures, has
not been recommended. (Hybrid trusts are discretionary trusts that have some fixed
beneficial interests.) In part, that is because, to claim an exemption, resident
beneficiaries would need to ascertain whether there is a resident transferor to whom the
transferor trust measures apply. Another disadvantage of applying only the transferor
trust measures is that a transferor may be taxed on amounts that can be shown to be
accumulating for the benefit of resident beneficiaries and hence should be taxed in their
hands.

The impact of the proposals in Recommendations 20.8 and 20.9 on the foreign
source income rules for fixed trusts is summarised in Table 20.3.

(a) That the transferor trust measures generally apply to income derived
from the 2000-01 income year in respect of transfers to foreign discretionary trusts made
prior to:

(i) the operation of the transferor trust measures (`pre-commencement
transfers'); and

(ii) a transferor becoming a resident (`pre-residence transfers').

Exclusion for certain transfers

(b) That paragraph (a) not apply:

(i) for four years after a transferor becomes a resident - if the
transfer was made more than four years prior to the transferor becoming a resident; nor

(ii) to temporary visitors who stay no longer than four years in
Australia.

Exemption from identification of family trust beneficiaries

(c) That the requirement for primary beneficiaries of family trusts to
be identified by name not apply for foreign trusts created:

(i) before the commencement of the transferor trust measures; or

(ii) before a transferor first becomes a resident.

Reduced attribution where sufficient foreign tax paid

(d) That attributable income under the transferor trust measures be
reduced by the amount of trust income distributed to foreign beneficiaries where foreign
tax paid on the distribution is at least 20 per cent of the amount distributed.

Reduced attribution where no benefit for residents

(e) That attributable income for foreign trusts affected by
paragraph (a) be reduced to the extent the Commissioner of Taxation is satisfied
residents will not benefit from such trusts.

The application of the transferor trust measures to pre-commencement and pre-residence
transfers is discussed in A Platform for Consultation (pages 678
and 690-691).

Transfers made before the operation of the transferor trust measures are currently not
covered by the measures unless the transfer was to a discretionary trust and it can be
shown that the transferor or an associate is in a position to control the trust. Given the
anti-avoidance rationale for the measures, the current restriction relating to control
should be removed because:

 discretionary trusts are commonly used to avoid tax by hiding
interests residents have in profits accumulating offshore;

 it is difficult to show in practice that a foreign trust is
controlled (even though the term has a wide meaning for the purposes of the transferor
trust measures) because information that can be obtained by the Australian Taxation Office
(ATO) on offshore arrangements and on agreements between related parties is often informal
and in the hands of parties in tax havens that have laws against disclosure of
information; and

 the income accruing in these trusts has not been taxed since the
transferor trust measures commenced in 1990, which represents relief well beyond
normal transitional relief.

Prospective residents are allowed by the current treatment to transfer assets to a
foreign trust immediately before becoming a resident. Australian tax is thereby deferred
or avoided unless it can be shown that the foreign trust is controlled by the prospective
resident. Again, this is not appropriate because transferors are then not taxed on income
that accrues after they become resident in Australia and are enjoying the benefits of
publicly provided services.

The recommended measure will only apply to income of affected trusts from the 2000-01
income year.

Attributable income under the transferor trust measures will be reduced by trust income
distributed to foreign beneficiaries where foreign tax paid on the distribution is at
least 20 per cent of the amount distributed. The risk that these foreign
beneficiaries would be used to pass on tax-preferred or exempt benefits to Australian
residents is low because comparable foreign tax has been paid on the distributed amounts.

The transferor trust measures will not initially apply to transfers made more than four
years before a transferor becomes a resident. These transfers are unlikely to have been
made to avoid or defer Australian tax. However, the measures will apply to such transfers
four years after a transferor becomes a resident. This will allow transferors time to
reorganise their affairs but also ensure that they are not treated more favourably than
other residents on an ongoing basis.

In addition, not applying the transferor trust measures to temporary visitors to
Australia whose stay is no longer than four years would be consistent with the temporary
visitor exemption in the FIF measures.

The operation of the definition of family trusts will be improved by removing the
requirement for primary beneficiaries to be identified by name in the trust deed for
trusts created:

 before the commencement of the transferor trust measures; or

 before a transferor first became a resident.

Broadly, the transferor trust measures do not apply to family trusts where the only
beneficiaries are non-residents in necessitous circumstances who are close relatives of
the transferor. These trusts are unlikely to be used for the purpose of avoiding
Australian tax. The requirement for beneficiaries of family trusts to be identified by
name is overly restrictive for trusts created before the conditions of the exemption were
known.

Other foreign discretionary trusts affected by the wider application of the transferor
trust measures may not have been set up for the purpose of avoiding Australian tax. The
attributable income of these trusts will be reduced to the extent the Commissioner is
satisfied residents will not benefit directly or indirectly from the trusts. To qualify
for the reduction a transferor will need to estimate the extent to which residents will
benefit from a foreign trust and to furnish information requested by the Commissioner for
making a determination. Tax not paid because of the Commissioner's determination will
become payable with interest if the transferor underestimates the extent to which
residents actually benefit. A moderately high interest rate will need to apply to
discourage transferors from understating the estimate.

(a) That an amnesty be provided to allow foreign trusts to be wound up
where they are affected by the wider application of the transferor trust measures
(Recommendation 20.10), with:

(i) trust distributions to Australian residents made under the amnesty
to be taxed at 10 per cent; and

(ii) an indemnity to ensure trust distributions made under the amnesty
do not lead to an investigation by the ATO of a taxpayer's domestic affairs, or
international dealings, relating to a foreign trust wound up under the amnesty.

Qualifying conditions for amnesty

(b) That the amnesty only be available where a taxpayer satisfies the
Commissioner that:

(i) a foreign trust has been wound up;

(ii) a full distribution has been made of all property of the trust;

(iii) that property includes the balance remaining:

 of all amounts transferred to the trust prior to the
commencement of the transferor trust measurers or prior to a transferor becoming a
resident; or

 of all income derived by the trust from those transferred
amounts or from the reinvestment of such income; and

(iv) if the full distribution was not made to Australian residents, no
Australian resident has any direct or indirect interest in that part of the property
distributed to non-Australian residents.

Exclusion from amnesty

(c) That the amnesty not be available if after the commencement of the
transferor trust measures:

(i) a resident made a transfer, or caused a transfer to be made, to a
foreign trust;

(ii) a foreign trust has been identified by the ATO as having been
controlled by a resident transferor (for instance, where the transferor trust measures
have previously been applied to a foreign trust because the trust was controlled); or

(iii) there has been a notification that the ATO is undertaking, or will
undertake, an investigation of a transferor's taxation affairs.

This proposal was not discussed in A Platform for Consultation but is being
recommended to allow foreign trusts to be wound up where they are affected by the wider
application of the transferor trust measures in Recommendation 20.10.

A rebate was provided when the transferor trust measures were first introduced to
encourage residents to wind up their foreign trusts. The rebate operated to limit the tax
payable on trust distributions to a rate of 10 per cent and applied where
foreign trusts were completely wound up before 30 June 1991. Few amounts were
distributed from foreign trusts under these arrangements because further tax liabilities
could arise if the Commissioner were to investigate the circumstances that gave rise to
the distributed amounts.

The Review recommends that residents with foreign trusts affected by the wider
application of the transferor trust measures for pre-commencement and pre-residence
transfers to foreign trusts be given a final opportunity to normalise their tax affairs by
providing an amnesty for the winding up of those trusts.

Tax payable on trust distributions made under the amnesty will be limited to
10 per cent of the distributed amount and will apply to distributions of both
accumulated income and contributed capital. No distinction would be made between
arrangements involving tax avoidance or tax evasion. An indemnity would also apply to
ensure trust distributions made under the amnesty do not lead to an investigation by the
ATO of a taxpayer's domestic affairs, or international dealings, relating to a foreign
trust wound up under the amnesty. The ATO will be permitted to verify that the
requirements for the amnesty had been satisfied but information gathered would not be
permitted to be used by the ATO for other purposes. The indemnity will make the option of
taking advantage of the amnesty more attractive.

While there are sensitivities in relation to taxpayer equity and compliance enforcement
attached to this recommendation, the Review also recognises the pragmatic benefits from
normalising complex offshore trust arrangements.

That the Commissioner be able to apply for a court order to amend
assessments for the purposes of the transferor trust measures where the normal amendment
period has expired.

Wider amendment powers for the transferor trust measures are discussed in A Platform
for Consultation (pages 678-679 and 692).

In many cases it is not practical to establish within the normal four year amendment
period whether the transferor trust measures should apply. It is difficult, for instance,
to use return form questions to identify cases deserving close attention where taxpayers
rely on fine points of law to take favourable positions when responding. It can also be
difficult to obtain information on offshore arrangements in a timely fashion where those
arrangements are purposely structured to make detection or verification difficult. Often
arrangements only become visible when Australian residents ultimately benefit from a
foreign trust -- which may not be for many years after the expiry of the normal amendment
period.

The Commissioner will therefore be allowed to amend assessments for the purposes of the
transferor trust measures after the expiry of the normal four year amendment period where,
for instance, a court is satisfied that:

 a transferor's response to a questionnaire or return form question
on matters material to the application of the transferor trust measures was incorrect or
misleading; or

 information requested from a transferor on matters relating to the
transferor trust measures was not provided or was incomplete; or

 a transferor or other party otherwise takes action which obstructs
the ATO in the application of the transferor trust measures.